Federal, Outsourcing, Market
INPUT Predicts US federal IT outsourcing market to reach nearly $18b by FY10
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Despite calls to limit governmental outsourcing (see "US Senate passes spending bill that discourages outsourcing"), the US federal IT outsourcing market is expected to increase at a healthy compound annual growth rate of nearly 8 percent, growing from $12.2 billion in fiscal year 2005 to $17.6 billion by fiscal year 2010 (FY10), according to a report released today by INPUT, the authority on government business. New market drivers are emerging in the federal outsourcing market that will continue to compel agencies to spend on IT outsourcing, namely the Office of Management and Budget's (OMB) Lines of Business (LoB) initiatives.
"A number of factors have combined to make outsourcing one of the fastest growing federal market segments over the past several years," said Chris Campbell, senior analyst, federal market analysis for INPUT. "In a time of war, a deficit, and tightening federal budgets, INPUT expects the federal IT outsourcing to remain one of the healthiest federal markets. Generally speaking, the business challenges and market factors driving the decision to outsource are similar between the private and public sectors. Most often, outsourcing is prompted by the need to supplement internal technical resources, reduce costs, infuse new technology, or standardize and streamline operations."
The LoBs, which include human resources management, financial management, grants management, case management, federal health architecture, and IT security, will require agencies to continue spending on outsourcing.
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For each LoB, government agencies will submit their business cases to the Centers of Excellence -- those agencies deemed specifically qualified to perform LoB services. "While not strictly centered on IT, the six initiatives will require entire business processes to be transferred from agencies not contracted as Centers of Excellence," said Campbell. "As a result, agencies will focus on transitioning major programs out of their agency to a shared service provider."
Encouraged by the Bush Administration's management agenda and proven cost savings, federal agencies have, for the most part, accepted the need for competitive sourcing. Despite the executive priority and proven cost savings to agencies, competitive sourcing remains a hot-button issue. As in past years, legislation to stall the move of jobs from the public to private sector found its way into some appropriations bills, and was even passed by Congress in the case of the Treasury - Transportation appropriations bill that aims to limit the chance that work will be moved to the private sector. The bill stipulates that vendors must prove a 10 percent or $10 million cost savings over having federal workers perform the work (see link above to the December 2005 news item).
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